BANK Negara Malaysia’s (BNM) decision to increase the overnight policy rate (OPR) will certainly burden borrowers, including small-medium enterprises (SMEs), business and consumer associations have said. 

According to the groups, a third successive OPR increase in a span of five months will only have a negative impact on economic recovery.

SME Association of Malaysia vice president Chin Chee Seong said an increase in the OPR will cause revenue problems, with most businesses servicing loans. 

“Any increase in OPR shall definitely affect SMEs as many of them have bank loans, which they use to run their businesses. 

“Suddenly, their monthly repayments have increased, which will surely cause cash flow problems,” he said. 

With businesses just starting to recover after Covid-19 lockdowns, Chin said the central bank’s decision to increase the interest rate will surely hit SMEs. 

“As restrictions were just lifted not long ago and SMEs are still struggling to manage recovery, any increase in OPR shall definitely hit them hard,” he added. 

On Tuesday, BNM raised the OPR by 25 basis points to 2.5%. This is the central bank’s third consecutive rate hike, after increases to 2.25% in July and 1.75% in May respectively.

With continuing inflation, OPR increases force borrowers to pay more on monthly loan instalments.

Marimuthu Nadason, president of the Federation of Malaysian Consumers’ Associations (Fomca) also said the increase will impact the Bottom 40 (B40) and Medium 40 (M40) groups the most. 

He said the increase would further add to the people’s household debts as the cost of living also has risen. 

“People are suffering and they are hit again and again with inflation, increase in the cost of living and now hike in OPR yet again. 

“This (OPR increase) is the third for the year and the year isn’t over. There might be further increases, we don’t know.

“How are the people going to cope? Some are already doing two to three jobs, yet it is not enough to stay afloat,” he said.

Marimuthu said everything has become more expensive but salaries have not increased to match. 

“The government increasing the minimum wage doesn’t mean people can cope with inflation or constant increase in loan repayments. This is just hitting them hard,” he said.

Impact spending power

Although the rationale behind BNM’s decision to increase the interest rate was to stabilise prices and control inflation, associations feel the timing will likely stabilise prices.

According to Chin, the increase in interest rates will also impact spending power.

He said this in return will also affect profit margins.

“As SMEs’ customers are mainly local, the increase in OPR will mean they spend less, and this will reduce revenue and affect profitability,” he said. 

Meanwhile, Marimuthu slammed the government for its failure to tackle inflation, which he said will result in consumers becoming more prudent.

“This will then have a domino effect, affecting everyone, which will not look good. 

“Where are they going to get the money from? They can’t be relying on short term assistance like Employees’ Provident Fund withdrawals or government aid. It won’t be sufficient in the long run,” he said.

Marimuthu also said continual OPR increases will put off potential house buyers. 

“People will be worried about investing and buying properties,” he said. 

He said that the rental market also could be affected, because owners would pass on the increase in mortgage repayments to the tenants. 

Meanwhile, the National Recovery Council (NRC) has recommended that banks should offer moratoriums to SMEs, especially those that are still struggling to recover post-Covid-19.

Council chairman Muhyiddin Yassin said there have been three NRC meetings to discuss SMEs, which have asked for financial assistance since some of them are still unable to recover and business is declining. 

SMEs currently represent 90% of the country’s economic activity, added the former prime minister. 

Chin said he agreed to Muhyiddin’s suggestion, urging the government to consider another moratorium. – September 13, 2022.